Putin Weighs Slower Growth in Utility Fees to Fight Inflation

Russia, which is struggling to rein
in inflation and revive the economy, may slow fee increases for
regulated industries such as electricity and natural gas,
President Vladimir Putin said.

Proposals at an economic-policy meeting in the Black Sea
resort of Sochi this week would lower the planned rate of tariff
growth for companies such as OAO Gazprom (GAZP), according to Putin.
Tariff increases fan inflation expectations, he said today
during a live televised call-in show.

The government may suggest freezing tariffs, an official
who participated in the Sochi meeting said on condition of
anonymity because the information isn’t public. Still, companies
must nevertheless fulfill investment pledges or risk management
changes, according to the official.

Russia became the largest emerging economy to raise
interest rates last year as the central bank prioritized
inflation over the flagging economy, resisting government calls
to lower borrowing costs. While Putin demanded April 22 that the
Cabinet draw up proposals to stem “alarming signals” of
economic deceleration, consumer-price growth remains above
policy makers’ 5 percent to 6 percent target range.

The ruble has lost 2 percent against the dollar this year
because of a decline in the price of oil, Russia’s main export
earner. The Micex Index (INDEXCF) of stocks has lost 7 percent.

Investment Cash

The government usually sets annual tariff increases above
inflation so state-run monopolies such as Gazprom, OAO Russian
Railways and OAO Russian Grids can fulfill their investment
programs. It’s already delayed by more than two years a plan
raising regulated gas prices for industrial consumers to make
domestic sales for Gazprom, the world’s biggest gas producer, as
profitable as exports. The government had previously targeted
parity in 2011.

Gazprom’s board approved 705.4 billion rubles of
investments for 2013 in December and may revise the plan up in
the second half of the year, Chairman Viktor Zubkov said April
19. Russian Railways plans to invest about 1.1 trillion rubles
in 2013-2015 to upgrade infrastructure, while Russian Grids,
formerly MRSK Holding, has allocated 835 billion rubles through
2017 for reconstruction, new capacity and distribution.

Railway-cargo tariffs rose 7 percent Jan. 1, while
electricity and gas prices for industrial customers will
increase 10 percent and 15 percent on July 1, according to the
Economy Ministry. Putin delayed some tariff increases by six
months last year to hold inflation back before presidential
elections in March.

Inflation Role

Non-monetary factors including tariffs and food prices
account for half of the inflation rate, according to Elvira Nabiullina, Putin’s economic aide who’ll take over as central
bank chairman in June. Government and monetary-policy makers
should coordinate on utility tariff issues, she told lawmakers
April 9.

Consumer-price growth reached 7 percent from a year earlier
in March compared with a 6.6 percent advance in 2012. Russians
rank inflation as their second-biggest concern behind housing
and access to utilities, according to a March 15 poll by the
state-run All-Russian Center for the Study of Public Opinion.

Gross domestic product will expand 2.4 percent this year,
according to the Economy Ministry, which has cut an earlier
forecast for 3.6 percent growth and said high interest rates are
partly to blame for the slowdown.

The principles of economic policy will remain unchanged,
Putin said today.

“We will primarily pay attention in the future to
macroeconomic indicators and guide the real economy to meet the
population’s social needs,” he said.